This proposal will strengthen the evaluation of one component of a California State-funded demonstration that tests an innovative service delivery and financing (capitation) program for the severely mentally ill (SMI) in two counties. The evaluation addressed in this proposal involves a two-site randomized comparison between the pilot "Integrated Services Agency" (ISA) and usual care under the existing service system. This research effort will be undertaken jointly with the State-funded evaluation contractor (Lewin/ICF Inc). Our proposal is designed to: 1) collect additional cost data from agencies other than ISA providers on the topics of family burden and staff process evaluation; 2) analyze the cost and outcomes of the experiment from the societal context to complement the State-funding agency context and; 3) analyze the costs of the ISA pilots as compared to the costs of the usual care system using state-of-the-art statistical models. This revised proposal is written in response to recommendations made by the Services Research Review Subcommittee in their September 1990 Summary Statement. This study will significantly expand and improve the State-funded analysis plan, producing results for two audiences. First, state and national policy makers will have a cost-effectiveness analysis that is reliable and precise enough to make long-term policy recommendations. Second, the research community will have access to: a societal cost- effectiveness analysis strategy that presents an advance in the state- of-the-art compared with existing studies of publically funded capitated service delivery systems for the SMI; and findings that will address the gap in empirical knowledge regarding the costs and outcomes of such finance and service delivery innovations.